In many ways, cryptocurrency is the Wild West of international finance. It’s seen as a lawless frontier, attracting con artists, fraudsters, and scammers of all kinds. While the day-to-day reality is a bit more mundane, there are still plenty of risks out there for would-be crypto investors and experienced HODLers alike. After all, why would a scammer bother investing their own money in crypto when they can just trick someone else out of theirs?
In this post, we’re taking a look at five of the most common types of cryptocurrency-related scams.
1. Fly-By-Night Exchanges: From the very start, cryptocurrency exchanges have operated from within the gray areas of the law. Even exchanges that are now considered fully legitimate — Coinbase, Kraken, Binance — spent years in a kind of legal limbo while lawmakers and regulators worked out the details needed to bring them into compliance with existing finance laws. As a result, unregulated exchanges are still quite common in cryptocurrency world. If the people operating one of these semi-anonymous exchanges decide to cut-and-run with their customers’ deposits, there’s really not much anyone can do about it. Before sending your crypto tokens to any exchange, investigate their reputation and weigh the risks.
2. Token-Stealing Wallets: One of the easiest ways to steal BTC, ETH, or other crypto tokens is to trick unsuspecting people into downloading a fake wallet app. The victim sends their hard-earned tokens to their new wallet address, and the malware-soaked app immediately sends those coins directly to the scammer. Generally speaking, it’s safest to favor wallet apps that have been around for a few years, have hundreds of thousands of downloads, and whose developers are publicly known and well respected.
3. Sketchy ICOs: Part of the appeal of initial coin offerings (ICOs) is that they provide an opportunity to get in on the ground floor of a new token. Unfortunately, it’s not always easy to tell a great new blockchain-based business idea from a hype-driven ICO scam. It pays to use your common sense here. If the ICO isn’t backed by a well-known development team, doesn’t seem to have a unique use case, and is focusing all of its marketing on get-rich-quick language, consider looking for somewhere else to invest your money.
4. Ponzi and Pyramid Schemes: Most people don’t understand the underlying innovations behind cryptocurrency and blockchain technology. They simply know that there’s something called “bitcoin” that people are somehow getting rich from. Plenty of people want to be rich, so when a con artist comes along telling them about a once-in-a-lifetime opportunity to invest in something involving “blockchain” and “cryptocurrency,” they may not realize that they’re actually falling for one of the oldest scams in history. Just look at OneCoin, which claimed to run a “private blockchain” that had no technical use or business model, and which offered “tokens” that could not be exchanged on the open market. Labeled as a scam from the very start by the cryptocurrency community, OneCoin ultimately scammed around $4 billion from investors before being brought down in 2017.
5. Phishing: If there’s one thing you can count on in the cryptocurrency world, it’s that an army of keyboard-wielding thieves are hard at work trying to discover new ways to steal your BTC, XRP, ETH, and other tokens. The techniques they’ve developed can be incredibly sophisticated, using methods like punycode and fake airdrops to trick cryptocurrency investors into unwittingly handing over their usernames, passwords, and even private keys. Cryptocurrency users can even be targeted individually using personal information — a technique known as “spear phishing” — to fool them into handing over private data.